Illustrates an example of Monte Carlo Simulation
Illustrates an example of Monte Carlo Simulation?
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We hold a complicated portfolio of investments; we would like to know the probability of losing money over the next year as our bonus depends upon our making a profit. We can calculate this probability by simulating how the individual components in our portfolio might develop over the next year. It needs us to have a model for the random behaviour of each of the assets, as well as the relationship or correlation among them, if any. Several problems which are fully deterministic can also be solved numerically by running simulations, too famously getting a value for π.
Example of Girsanov’s Theorem.
What will be the effect on riskiness of a portfolio if assets with negative correlations (even very low correlations) are taken together?
Explain the advantages and limitations of the internal rate of return method?
Why is Crash Metrics good risk tool?
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What is the Miller and Modigliani theory of dividends?
How is marking to market straightforward?
Illustrates an example of Poisson Process?
How is Information Ratio calculated?
What are the important observations about hedging error?
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